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    13 Replies Latest reply on Jul 4, 2008 6:01 PM by Lighthouse24

    Opinions Wanted

    Archangel Adventurer
      I have an idea and would like to hear some opinions on the matter from buisness people like you. Here is the idea:

      Total IT outsourcing. It's not unlike negotiating an SLA, or service level agreement, with your IT company, and at the same time leasing the computers from them, but there is no SLA and no lease. Instead, there is a contract that says you get to use X number of computers with full service and support for the term of the contract. In other words, I configure the computers to your needs, deliver and install them, provide whatever training might be necessary, then perform scheduled service and handle any support requests that come in. I haven't heard of anyone, at least not here locally, doing anything like this. Have you heard of anything like this? In any case, what is your opinion of this kind of service? Would you use it?

      Archangel
        • Re: Opinions Wanted
          Lighthouse24 Ranger
          Sorry, I'm not understanding the concept . . . you say, "there is no SLA and no lease. Instead, there is a contract that says you get to use X number of computers with full service and support for the term of the contract." To me, the contract sounds exactly like a lease agreement with service/support. What am I missing -- how is this idea different? Thanks.
            • Re: Opinions Wanted
              Archangel Adventurer
              The difference is there is no lease. A lease is a type of contract that is very specific. It's going to have terms that may or may not be similar to what I'm proposing. What I propose is that you don't actually lease the computers. I know how that sounds, but there is a difference. Specifically, the computers remain mine in the true sense. A lease gives you some rights beyond just the use of the computers, what I'm talking about does not. It has some drawbacks, but there are benefits as well. For instance, at the end of the term of the contract, there are a number of options available that would not necessarily work well with a lease. It would be possible to regetotiate for instance a term for less than the original contract, but that included refurbishment or upgrade of the existing systems. I think the main differences between what I'm talking about and a lease with service is a level of flexability that you won't find in a lease. Suppose you have 5 computers and suddenly you need another one. Not a problem in either case, but what if you have 5 and suddenly only need 4? With a lease you're probably stuck, not so with what I am proposing. There's a lot more, but I think you get the idea.

              Archangel
                • Re: Opinions Wanted
                  Lighthouse24 Ranger

                  I don't see the advantage . . . so if nothing else, there's one opinion (which is what you were seeking). In my view, you'd really have to better clarify the distinction and advantages in order to sell this concept to me.

                  This may be inaccurate, but it seems like your biggest/best potential customers in this arena would be federal, state, and local government agencies and contractors -- and they are generally prohibited by law from acquiring/using equipment for longer than six months, unless it's either purchased or leased under a contract that includes specific buyout options. So that strikes me as a potential hang-up, too.

                  I know that's not exactly positive feedback, but I do hope it helps.
                    • Re: Opinions Wanted
                      Archangel Adventurer
                      It's true, this isn't exactly the best venue for trying to get the point across. You'd have to actually read the contract, and it would have to be detailed to your specific situation. Let me ask you something though. Where are you located? I've seen several very large lease/service deals made, some for hundreds of computers at a time, and not one of them was with a government agency or contractor. In fact, one of those experiences was one of the factors that led me to try to develop and alternative to the lease/service way of doing things.

                      Some years ago I had an IT contract with a very large insurance and financial services company. I won't mention any names, but think San Francisco. Anyway, the contract was at their Los Angeles headquarters downtown. One of their major brands was coming to the end of a two year lease deal that had cost them a couple of million dollars. Now the leasor was coming to pick up the computers and that was going to be the end of it. They had considered extending the lease, but it would have meant another million a year and then you're starting all over again, including a new set of computers, with the same thing. From a financial point of view it's an all pay and no get situation. I advised them to buy the computers instead and add a couple of guys to their IT staff for support. They needed 398 computers and to add two IT staff. The lease/support deal was for about a million a year.

                      The cost of 398 name brand computers they wanted was about $850 each. The IT guys would be about $65K a year including benefits, taxes, etc. That's $130,000 for staffing, and $338,300 and tax for the computers. The bottom line is it comes to about half the cost. Plus, the computers are good for three years, not two. My idea is to give you the best of both worlds. Deliver the service, including the computers at a rate that is competitive with you buying the computers and hiring the staff, but with none of the headache. Then, at the end of the term of the contract, have an option that will actually involve a significant decrease in the rate. I think that's worth exploring.

                      Archangel
                        • Re: Opinions Wanted
                          snipperred Scout
                          Hi there,

                          I like the idea of Total IT Outsourcing. Who is making the decision to lease for twice what it costs to internally staff and own? - obviously not an IT specialist. The whole issue of managing IT from a decision perspective is kind of interesting to observe. Mainly, what is going through the decision maker's mind when presented with the options and corresponding trade-offs. Obviously cost is an issue. But then you get into other considerations from depreciation and maintenance vs. lifecycle- right?

                          Then the headaches. How does the decision maker quantify/ qualify the difference between a IT management expert or the best they can find with the least impact on budget? My point is the business pro is not necessarily the IT pro and managing everything can be stressful- especially when you deal with the consequences of your decisions. If you come in and take ownership for the cost/ benefit/ consequences then that is where the value is. That is where your own margin should be. Everything else should be pass through- transparent pay for utilization with intelligent conditions you would be the expert on and would make sense to the decsion maker.

                          Flexible leasing- like Iwrite suggested- makes more sense to me if we are talking about equipment. You could be selling yourself short of some major income if you can offer competitive leases against the case you mentioned. What drives the advantage of your idea to me is the genuine intelligent value to go against leaving decision-makers to live with the never ending question whether they made the right decision.

                          So, it would seem you are putting yourself in their shoes. Total IT Outsourcing. Now that is a service. Pass through accounting for unscheduled maintenance, communicated scheduled maintenance, wirtten justification for expenses compared to industry statistics and referencing IT Management BMP's, and then a "management fee". Then a contract makes perfect sense.

                          Hope my opinion is useful.
                            • Re: Opinions Wanted
                              Archangel Adventurer
                              Um yah, what he said. Hey, can I use that? Seriously though, your opinion is useful. The real intersting thing is, and scary in a way from my perspective, that I thought of all that pretty much just as you wrote it, but I could never in a million years just write it out like that. I think if it's structured correctly it could be very profitable and at the same time could save the customer some money. The only concern I have the the potential for some serious headaches.
                                • Re: Opinions Wanted
                                  snipperred Scout
                                  Thanks Archangel. No need for it to be scary! I already know this model of doing business. You can use the information but I'd rather not be quoted at this time.

                                  My advice when it comes to contracting is to use an attorney. I'm sure you can sit down with one long enough to cover the details you want in and want protection from- to draft the basic model out. What you pay is minimal for the protection you get.

                                  With a management contract, you can basically completely indemnify yourself. They want the use of your expertise and you will do your best. However, if either of you are "unsatisfied" then can discontinue upon term. If either of you are "disatisfied" then protocols defining recourse escalation, who pays, and the limits of liability. Contracts are more for when things go wrong. Expect the best, prepare for the worst, and cover your 6!

                                  Commit NOTHING! Simply offer your outsourced IT Management services on a contract basis rather than as an employee. Find out what deals are out there and beat it with your own. The realities for how to do this can get complex. The key to dealing with the headaches is to keep it simple and make sure their IT headaches are what you are managing. There are plenty of ways you can commit yourself that will get you in trouble. Definately need to consider the structure of your management fee. Is it by computer, % based, flat, variable combination, and so on.

                                  Fun stuff. The fine print shouldn't be something they need to read. If you come with the integrity, then the agreements should be sent to their legal departments and you should simply impress the decision-makers with the values and savings you believe you can bring as their IT Manager (outsourced). I like the idea of Total IT Outsourcing to include your own equipment options. Based on your figures and opportunity you mentioned, I can see there could be a lot of profit to enjoy.

                                  I have experience and may be able to help...for a management fee.. he he he! No really, these types of contracts are standard. $250 to $500 is reasonable to have an attorney write one up for you. Once you have the main points built in, modifying it is so easy a caveman could do it! Just do me a favor and make sure you build in enough to cover your own taxes . Anyways- Happy Independence Day!
                          • Re: Opinions Wanted
                            Iwrite Pioneer
                            If the advantage is flexibility, then focus on that and less on saying it is not a lease. I had problems with that also. Play up the advantages to a growing or shrinking business or a company with seasonal sales patterns or a company that relies on a large umber of temp/contract workers.

                            I can see this working but you have got to better communicate the main advantages to this program more clearly.

                            Good luck.

                            Iwrite
                            • Re: Opinions Wanted
                              DomainDiva Ranger

                              "A lease gives you some rights beyond just the use of the computers, what I'm talking about does not. It has some drawbacks, but there are benefits as well..."

                              You cover hardware and software but not data retention. Who owns that? You or the customer? Why would I as a customer want to trust you with my proprietary data and info?
                              I understand the concept....software and computers are expensive! However, what you are asking of the customer in terms of data retention I do not see you addressing. I cannot see anyone paying for computers that are not 'theirs' while they are in use at that business. What if they miss a payment ...what happens? Do they loose their information when you come and get the system(s)?

                              Also, you do not have appeared to really define your services and options once the contract expires; it seems as though your contract is written with only you in mind...not the needs of the customer.

                              I think you may do better going in and getting the client good pricing on stuff they want to buy, setting things up and getting a service agreement that covers routine maintenance, upgrades, additional purchases as well...sort of like a companies' own geek on call. Female owned businesses like Spas and Salons as well as fitness companies would benefit from this business model.
                                • Re: Opinions Wanted
                                  Archangel Adventurer
                                  I appreciate your feedback, and I understand what you're getting at with those comments, but just so you know, I'm asking for opinions about an idea here, not a service I'm already providing. Still, I do have some answers to some of what you posted.

                                  The data is, of course, the property of the customer. If as you point out they don't pay the bill, it's not a difficult thing to back the stuff up to DVD or a server, or whatever, and then remove it from the hard disk. I have to say though, I have been in a position of having a client, in fact a few of them, who suddenly when it came time to pay the bill didn't want too. Initiating the process of removing the purchased equipment from the premises was enough in all cases to have a check magically appear out of nowhere. Interestingly, every one of those customers was a lawyer.

                                  As for what happens afterward, I'm not sure I understand your comments. I haven't written a contract, let alone posted one here. I have mentioned that I could offer several options, renegotiate to a lower rate with the same equipment, refurbish or update the equipment, or just start over again and put the old stuff on ebay. Whatever. There are going to be different customers with different needs. I'll negotiate a contract with each customer based on that. I'm not going in there with a preconceived contract and say "take it or leave it." I think the reason it seems like it's about me and not the customer is because at this point I'm trying to hash out exactly what I can do here. I'm not even sure this will work at all.

                                  As for the rest of it. I already give my clients good prices, in fact I build the best computers available and price them very competitively. As for service agreements, my computers all come with 30 day money back guarantee and a full year of onsite support. Whether a business is female owned or not I can put the best computer they every saw on their desk and back it up with the best customer server they've ever had, and I can do it for the best price they're likely to get. I am begining to think you are right about that last part though. I should probably just stick to the model I'm using. This "Total IT Outsourcing" idea is begining to look like an administrative nightmare.
                                  • Re: Opinions Wanted
                                    webprogrammer Newbie
                                    Having read thru the comments about adding 2 IT guys for 398 pcs, I know from a number crunching point of view, it looks like a great cost savings. But the reality is that performance would suffer. It has long been resonable to assume that for every 50 pcs you need to staff 1 IT guy. Let's say that you really have your act together and thru software purchases and remote support you get that efficiency up to 100 pcs per IT guy.
                                    Granted, with volume comes efficiency of scale, but to assume 2 IT guys can support 398 pcs borders on ridiculous.

                                    As far as IT outsourcing, I am developing a company that outsources all IT support on a per user price. This is especially more profitable for small companies. Rather than paying for one person to support an office of 20 people, the company can get 24 hr support of their network for as little as $30k. Much cheaper than hiring a fulltime person with benefits. As part of developing this business, I am considering a plan to negotiate for pc leases for all customers ( although I have to admit that at this point, I am not leaning this way ).

                                      • Re: Opinions Wanted
                                        Archangel Adventurer
                                        I find some of what is in your post to be really unbeleivable. 50 pcs for one guy? I'd love to have had any chance at all ever to be responsible for only 50 pcs. Those pcs are either very old, very bad quality or used by completely incompetent users. Or, the IT guy is incompetent. Don't tell me it can't be done, I've made a career out of it for over 20 years. 30K a year for 24hour support on a network sounds good, but what size is the network? I have a client with 8 pcs, 3 printers, one server, a switch and some wiring. If you think he's going to pay me 30K a year even for 24hour support you're nuts. Out sourcing IT is not a new concept. I lost a position as Director of IT for a company back in 2002 due to it, and I don't really blame them, the numbers just added up a lot better for them that way. The problem is there aren't a lot of options. You either hire your own people, or you hire some outside company to take care of your stuff, whether you leased it, purchased it, whatever. My point is that the customer makes one deal with one company for everything.

                                        I think at this point I have to say now that I've run this up the flag pole it looks a lot different than it did what I first thought of it. This is not a good idea from my perspective. Although the idea as I first envisioned it does have merit, I think it has too many poticial negatives for my taste. First, I think there are too many ways to find competition. Two companies, say a leasing company and an IT services company, who are not in competition with each other, will both be in direct competition with me. Next, I think it needs a lot more time and effort put into the marketing aspect then I have right now to dedicate to it. Another thing is, for me anyway, just trying to define the concept seem a lot more difficult than actually conceptualizing it.

                                        No, I'm going to stick with my core competencies. I build the best computers you've ever seen delivered and installed at a very competitive price. I back them up with a 30 day money back guarantee, a full year of on site support and the best customer service you've ever had. Provide the best product possible at a competitive price, and deliver it with the best service and support possible. I think that pretty much sums up my business. Total IT Outsourcing is not in the cards for me, at least not at this point.

                                        Archangel
                                          • Re: Opinions Wanted
                                            Lighthouse24 Ranger

                                            Archangel, I concur with you. For my clients, the average ratio at a single facility or plant site is around 320 PCs per IT support specialist. I wondered about the comment, "It has long been resonable sic to assume that for every 50 pcs you need to staff 1 IT guy." I wonder if that unique to a specific industry, or if perhaps that member is outside the U.S.

                                            The very lowest recommendation I have ever read for a U.S.-based site was a 45 to 1 ratio (the recommendation came from a leading IT support firm!) -- and that was in a situation where there was no remote control/access (every problem required a technician to go to the machine), there was no hardware or OS standards (there were PCs, Macs, Vista, XP, Linux, several mainframe GUIs, etc.), there was no remote software deployment and no cloning/ghosting capability (every machine was built/loaded individually), and users had unrestricted local admin rights. With decent tools and standards in place to reduce complexity, and with a reasonably competent staff, 125 to 1 is generally adequate to get a site through some fairly major hardware and software upgrades. I've seen (as I'm sure you have) operations with numbers like 570 to 1 (although they were really stressed, and support was not adequate). Even so, if you were dealing with a government entity or publically traded company, all of those examples would make it nearly impossible for the decision-maker to sell an auditor on the need for a 50 to 1 ratio.

                                            I believe your final analysis of the business opportunity you were exploring was also on-the-mark. Good luck with your core enterprise!